Industrial Growth and Policy before Liberalisation

Hemant Pratap Singh

20-NOV-2015 17:35

The first industrial policy was announced in April 1948 by then industrial minister, late S P Mukherjee. Its historic importance lies in the fact that it started the system of mixed economy in the country.

The main features of the industrial scene in India on the eve of planning (1950) were as under:

There was the preponderance of consumer goods industries vis-a-vis producer goods industries resulting in lopsided industrial development. In 1953, the ratio of consumer goods to produce goods worked out to be 62:38.

The industrial sector was extremely underdeveloped with a very weak infrastructure.

The lack of government intervention in favour of the industrial sector was considered as an important cause of under-development.

Export orientation had been against the country's interests.

The structure of ownership was highly concentrated.

Technical and managerial skills were in short supply.

Salient features of first Industrial policy (1948):

Development of mixed economy

State programmes for the development of industries.

Promotion of small scale and cottage industries

Foreign investment was allowed but effective control was with Indians.

Twelve industries were reserved for mixed sector of public and private

Policy laid emphasis on the state for the development of the new industries

The policy welcomed foreign capital but effective control was in the hands of Indians.

Policy emphasized on the reduction of regional disparities.

Industrial Policy Reforms 1980s

Industrial policy changes of the 1980s represented a response to the heavily felt need for domestic deregulation. Experiments with industrial delicensing, weakening of MRTP provisions to provide larger scope for large industrial houses, incentives for modernization of capital stock, policies for major industries such as textiles and sugar, gradual introduction of price decontrol for cement and aluminum, etc., were some of the major steps taken in the direction of domestic deregulation.

A major exception to this thrust was the continuation of the policy of reservation of production for the small-scale sector particularly since it constituted an important hurdle in the way of developing export capability in sectors such as garments, leather products, sports goods, etc., where India has a comparative advantage.

The Policy Regime in the 1990s

A process of reflection and debate on the need for a change in policies had been set in motion in India in the second half of the 1970s, i.e., about the same time that China was preparing for a major change in policy. It is worth noting that China went ahead with full force towards market orientation and doubled its GDP between 1978 and 1991. By contrast, India used the decade of the 1980s for hesitant experimentation in domestic deregulation, while retaining its highly protectionist trade policy regime and keeping its loss-making public sector intact. The reform on the industrial policy front, however, coincided with a sharp deterioration in the fiscal accounts of the government. As the Government of India's policies became increasingly expansionary to support growing levels of current government expenditures on sharply rising interest payments, defense and subsidies, the gross fiscal deficit of the government increased from 6.2 per cent of GDP in 1980-81 to 8.3 per cent by 1990-91.

Although MRTP Act 1969 was scrapped due to its negative impact on the industrial development in the country but the economy was still growing at the so called Hindu rate of nearby 3.5% till 1980. So it had inevitable for the policy makers to go for some drastic changes in the economic policies of the country.